Appraised value may be more than market value. This is not an infrequent occurance. Investors, real estate speculators, and home buyers often take advantage of this situation.
The appraisal of a residential property is a very straightforward process. Appraisers look past the cosmetics of a property and base their appraisal on the basics. They look at the location and size of the lot. They look at the square footage of the house. They look at the number, size, and type of rooms therin. They look for amenities such as central air conditioning, city water, santiary sewerage, etc. They will rate the overall condition of the property as good, average, or poor. They look past landscaping and interior decoration. After all, these things can change drastically over the life of a thirty year mortgage.
The appraised value of the house is usually calculated by comparing it to the recent selling prices of similar homes in the same area.
Consider a home with overgrown landscaping, peeling paint, and shingles obviously near the end of their useful life. Inside, let us assume that the wall to wall carpet is worn and dirty and the walls are covered with 1960's flocked wallpaper. Assume that the water heater is 15 years old and the lighting fixtures are dated. Perhaps the garage door is in bad shape although it still works. You get the picture. These cosmetic problems will not lower the appraised value of the house, but will almost certainly influence the market price.
The market value of this home is generally the highest price a potential buyer is willing to pay. Only in the hottest real estate markets will the market value equal, or sometimes exceed, the appraised value of the house we just described. This is a sellers market because demand far outpaces supply.
Most real estate markets are buyers markets where supply outpaces, or is equal to, demand. Buyers in this type of market can afford to be choosey. With a lot of choices in a buyers market, why would a buyer choose to pay the appraised value of this home? Most buyers would look at the expense involved to remedy the problems we identified, and adjust their purchase offer accordingly. This is a classic example where the market value is less than the appraised value.
These are the situations that investors, real estate professionals, and savvy home buyers take advantage of. Our home may have been appraised at $100,000 but may only bring $80,000 on the market. A savvy buyer now has the opportunity to obtain a mortgage for 80% of the appraised value without having to put up any cash for a down payment. Furthermore, a homeowner willing to do most of the work themselves may be able to quickly fix the problems we identified for less than $5,000 cash. The homeowner can then turn around and sell the house for a market price that equals or even exceeds the appraised value, pocketing a $15,000 profit in the process.
Cut to the chase ... "Which is worth more - market or appraisal value?" ... it can go either way depending on the local market and the merits of the home in question.
Good question ... it makes a person think.
Good luck with your real estate endeavors.